My Biggest Doubts About Crypto? - with Michael Ippolito Ep. 027

My Biggest Doubts About Crypto? - with Michael Ippolito Ep. 027

– When you don't have structural growth, you can get credit-driven cyclical growth in the form of currency
debasement, basically. And that's creating economic inequality. All anyone wants to talk about is, is there gonna be inflation? Is it even inflation or deflation? And to me, that's kind of
missing the point, right? The real problem, the vector of attack that the U.S. is vulnerable
from, is economic inequality. (upbeat music) – Welcome back to the
Empire's New Clothes. I'm your host, Bradford MacArthur. Just as a reminder, if you like what we're doing, like subscribe, rate, and review, it's the best way to help us
keep producing these episodes every single week.

We're about to speak
with Michael Ippolito. He's one of the co-founders of BlockWorks, a crypto media company, and he's also the host of On The Margin. It's the show where he meets to discuss big macro forces with his guests. But the cool thing about Michael, he's a deep thinker, and
he's also a classics major and has this great passion about history, specifically Roman history. So our conversation today,
I'm super pumped on, because we dive into the linkages between the history
the Romans went through with their currency
debasement and everything, and then our society today. So it's very, very fun. I hope you enjoy it. Michael, welcome, thank you for joining. – Yeah, thank you, Bradford. Happy to be here. – Yeah, stoked. So, just before recording, we found out you are not on
the East Coast right now. (Michael laughing) You're hailing from the old Montana. – Big Sky, baby. Yeah, God's country out here. (laughs) (Bradford laughing) It's good. – Nice.
– Yeah. I was telling you, my
sister's been out here for like six or seven years,
'cause she went to MSU.

My parents always said that
they wanted to be close to one of their children. So now I guess we're finding out which priority they really had. – (laughs) Yes, they have. Although, you were probably
close to them for a while, so they're splitting the time. – Yeah, exactly. Usually I'm in New York. And we grew up in Boston. But it's a good excuse to
come out, do some skiing. Gotta learn how to fly fish. But that's on the docket. – Yeah, awesome. Killer, can't wait for it.

So Michael, I'm really
pumped to have you on. A lot of our guests, they
zero in on certain stuff, and it it's amazing. But you've got your… Well, you do a lot of stuff. You're a co-founder of BlockWorks. And you also run one of the channels. I don't even know how to say it, 'cause it's like a playlist on the BlockWorks YouTube channel, where you're interviewing
really big macro thinkers. And you're a crypto media company, but often you don't
even talk about crypto. You guys touch on these really big themes. And so, I'd love to dive into what are some of the really big takeaways that you've been kind of gathering, just as you, as Michael,
from these interviews? – Yeah, sure. So, what you're seeing on that channel, 'cause I'm the host of On the Margin, you're seeing what happens when
you cross someone in crypto with a huge history nerd, and someone who cares about financing. (Bradford laughing) It's kind of the love child
of all those different things. But, just a couple of words.

BlockWorks, we're a financial media brand, so we kind of bridge the gap in between more traditional finance and macro, and what's going on in
the world of crypto. So if you hear kind of
those broader themes, we're generally trying to tie
what's going on in our space to what's going on in the
macro world, basically. I tend to be pretty biased. I love to take a historical
kind of perspective on things. Yeah, big history nerd. – Us too, this is great. – Yeah, great. So we really get into it here. But I was a classics major in school, so I tend to draw a lot of comparisons back to the Roman Empire. And when you really line up Rome, kind of the rise and fall, and America and where we're at today, there are certainly a lot of parallels.

And I tend to draw a lot
back to wealth inequality. I think it's probably the
biggest vector of vulnerability that the U.S. has today. And if you pay attention to the news, which I really try not to do, there's a lot of not great energy, and kind of a polemicism that's come up over the course of the
last 20 or so years. And people tend to divide
that between red and blue, but I kind of draw that all
back to wealth inequality. – Yeah, and do you… So, if I was to ask you,
well, what caused that? The wealth inequality? – Yeah, sure.

So, I mean, if you look at
the rise of empires in general and what they really are, I mean, in order to maintain
successful organizations over a period of time, be
that an empire or a company, you need a couple of things, right? One, everyone kind of needs to adhere to the same set of cultural values. In companies, we call that culture. In countries, that's like… We kind of use the word values. But those are very sticky things, right? And that tends to last for really, really long periods of time. It's like at a company, you can change everything that you do. You can uproot your entire
team, change all your products, but the culture is gonna
stay there, somehow. So that's one really important component. The other, for empires, at least, is you need an economic engine. And you need to be able
to successfully reinvent that economic engine. Again, to make the analogy to companies, companies tend to change
their business lines over a period of time.

Wells Fargo was founded in the 1800s, they were initially a
wagon and traveling company and now they're a bank with
$500 billion in assets. You need to be able to
successfully reinvent whatever that economic
engine is that you have. Third is a bit more politically incorrect. You need a base of cheap labor. Historically, for empires,
that has meant slave labor. Today, that definition
has changed a little bit, but you need that access
to super cheap labor. And then fourth, results
of the political structure of empires is that it
always, always, always leads to wealth inequality. And so, what you need is
you need to be able to successfully implement policies that will lead to
redistributions of wealth instead of revolutions. So that's just a consistent thing that you need to keep getting right. And I think that's actually
the biggest challenge. That's what we're facing today in America. We need to figure out how to
do some wealth redistribution.

And there are plenty of lessons
throughout history, so… Yeah, however you wanna take this. I'm glad to give a brief history of Rome and how they managed this
and how they kind of failed and then where we kind of
stand with America today. – Yeah, why don't we do that? That would be awesome. – Cool, man. Any excuse to hear myself talk, I'll just get right into it. (Bradford laughing) So Rome, in case you
weren't as into it as I was, so, it endured for over a millennia. For a long period of
time, it was a republic, before it became an empire. It was founded,
originally, in like 753 BC. They made it about 700 years as a republic before they transitioned
to an empire in 29 BC.

Then they made it about another 400 years before they collapsed as an empire. So let's just go through
those four kinds of checklists about what was the successful… What led to the success of Rome. If you look at the values of Rome, they had this really strict adherence to kind of devotion and
respect and uprightfullness and kind of the state in general. And that lasted throughout
the majority of both the republic and then the empire. Although in the end, kind of that cultural value
system was challenged. And that was a big part of the decline. Then if you look at the economic engine, Rome was built on conquests. So initially, the conquests kind of began because they were worried
about their neighbors. So they, continuously, for
the first like 600 years kind of engaged in these
skirmishes and wars, but eventually that grew the
empire and they figured out, hey, this is actually quite profitable.

We get access to some lands. We get access to new peoples that we kind of folded into the empire. Those were slaves that
eventually became freedmen and kind of citizens. And actually, it was so
successful for them economically that they didn't even have
any sort of income tax until like 200 BC, which is pretty crazy. And even after that- – Really? – The income tax was only like 1% or 2%. Yeah, so pretty nuts. – Just 'cause they were expanding and then that cheap labor and it was just such a growth-oriented period? – Yeah, well the Romans, they
had this great system, right? They had this huge army.

So they'd basically come in and
they'd ask you to surrender. If you didn't surrender,
they would sack your city. They would take (laughs) all of your- – They'd make you surrender. – Yeah, they would make
you surrender, right? Yeah, they would essentially
take the entire treasury. They would usually convert
the populations into… I mean, we say slaves, that has a really
negative connotation now. It was negative back then, too, but it was a really much
more equitable kind of system that they had. – Yeah, slavery was very
different in the Roman Empire. We think of the African slave trade, whereas you could work
yourself out of slavery in the Roman… It was generally like a number of years, and it was very different. – Totally. And then they became freedmen. And they were very accepting of that. We were much, much worse in America, in terms of how we treated slavery. – Yes. – So basically, there were
two forms of income there. You had the initial kind of
treasury that they sacked and then they had tribute coming. So that was kind of the
first economic engine.

Then, for whatever reason, it just became more and more
difficult to expand, right? There's kind of natural limits
on how large you can push the limits of your empire. So they kind of transitioned
to this primarily agrarian economy and then
they implemented income taxes on that agrarian economy. So then, the targets for where they were trying to expand was not,
hey, I'm just worried about this powerful neighbor
to my north or south, but they were actually targeting farmland and places that could produce
massive sources of wheat. And a chief consideration
of the empire became how are we gonna feed all these people that are now in our empire? So that became a really big
challenge for them, basically, as they were going through. And then on that third
component, which is the labor, they kind of had their slaves
or freedmen or whatever.

The fourth aspect of their empire is where they really started to struggle, the inequality that ended
up getting built up. And this is where I'm gonna
kind of draw the comparison to what's going on in the U.S. right now. So basically, their growth
engine faltered around… The empire sort of peaked
under Trajan in 100AD. Then it was kind of in this
gradual state of decline. And you can ask a bunch of
historians about why that is. Some of them point to climate change. Some of it was just the difficulty of maintaining supply chains
across such vast stretches.

Some of it was that they
were running out of targets, basically, to go… Target empires to go ransack
and bring into their empire. Whatever it is, growth was slowing. And typically, when growth
slows on an empire-type scale, you see a couple of
things start to happen. One, which is what we're seeing today, the currency gets debased, right? (laughs) That's a really easy way
to buy yourself some time. You wanna make the nominal
value of growth continue to go? You just adjust the
denominator on the bottom. That leads to some pretty
undesirable outcomes, though. You tend to get inflation from that. And then you get things
like price controls. Those got implemented in Roman in 300AD. And price controls really suck. They're impossible to implement. Just look at the Soviet Union. Tends to lead to all sorts
of really, really big, intractable sorts of problems to solve. What ends up happening there is that the government tends to step in, in bigger and bigger ways. So you get administrative bloat, you get economic inequality, and then you get this kind
of collapse from the inside. So if you wanna go look at…

Go on Wikipedia and look up reasons why the Roman Empire falled, you're gonna get a whole
bunch of different reasons. They're gonna point to the
rise of Christianity, right? And that kind of relates
to that first thing, the deviation in traditional moral values, or it's just a new type of moral value. They'll talk about climate change. They'll talk about the difficulty of maintaining their border. My opinion, it was just this number two. They failed to reinvent
their economic engine, and that led to the
collapse of everything else. So yeah, you can get a lot
of really cool examples of history, basically. – Yeah, I can't help but think some certain similarities
to a virus, actually, when you're talking about… They have this model and
they're going in there, almost replicating
themselves somewhere else. And it's like, oh, well,
here's these like proteins, and I'm gonna go… Or, I'm probably not gonna weave too deep into that analogy,
'cause it'll dissolve 'cause I'm not a biologist, necessarily.

But- – Have you seen… Have you watched "The Matrix," Bradford? – Yeah, oh yeah. – You know Agent Smith's speech? "I've studied your species, Mr. Anderson. "You're not mammals, "you're a virus."
– Totally. – (laughs) Yeah. – Yeah, well, it's hard
not to see it sometimes. And then, exactly. And so, I almost think about
this carrying capacity. Of like, the Roman Empire had
this certain carrying capacity and even yourself, you're like, "For whatever reason, we
can't agree on exactly why, "but growth slowed." They reached the carrying
capacity of their model. And I guess, we can look now to the U.S.

And maybe we've reached
our carrying capacity. And we're at this point on…
to nerd out, the S curve, and are we gonna reinvent
our economic model or are we gonna not? And I guess that's the question to you is, what are your thoughts on that? Are we gonna reinvent? Are we kind of waiting
for technology to save us? Or do we have a couple other tricks that we're working on? – Yeah, I think our problem is actually not our economic model. I think our economic model is actually- – Okay.
– Just fine, right? The initial economic
model of the U.S.

Was land and housing and land ownership, right? That's why everyone
kind of made the journey over to the U.S. back in the
1600s and 1700s when they did. And that's why housing
and home ownership is just kind of at the bedrock
of the American psyche and the economy. It's just a really important thing. If you look at a lot of the
value that's been created over the last 20 or 30 years, that's really been innovation
and kind of technology and these sort of platform
business models and innovation. So the U.S. is either fully transitioned or partially transitioned
from the economic driver being land ownership, and also
an agrarian-driven economy like Rome was, to fostering innovation and then taking a cut of that innovation. And frankly, I think we're
at the very beginning of that cycle. So I think our economic
engine is actually fine.

But what you are starting to
see is a slowdown in growth. And there's a lot of
reasons why that might or might not be. The technology, actually, is a bit of a dual-edged sword there. We're also seeing just demographics and everything roll over. And just like in Rome, you're starting to see central banks and kind of monetary policy
paper over the problem, right? When you don't have structural growth, you can get credit-driven, cyclical growth in the form of currency
debasement, basically.

And that's creating
economic inequality, right? So I think the big problem
that we need to solve is economic inequality. That's why it's kind of
frustrating to listen. All anyone wants to talk about is, is there gonna be inflation? Is it inflation or deflation? And to me, that's kind of
missing the point, right? The real problem, the vector of attack that the U.S. is vulnerable
from is economic inequality.

And then it creates all
this internal divisiveness that I think we're all
suffering through right now. And if you want proof of that, by the way, if you look at how other
countries are attacking us, our foes, Russia, China, they're conducting cyber attacks through companies like
Facebook that are designed to alienate ourselves internally, right? So this is the way that our
foes are attacking us right now. And I think the sad thing is I think we actually kind of know what those axes of equality are. And again, if you look through history…

I wanna actually read you this quote. Let me see if I can find it here, 'cause it's a great quote. Again, through history. So, in 598 BC, this comes
from "Lessons of History." "In Athens of 594 BC,
the disparity of fortune "between the rich and poor
had reached its height, "the poor finding their status
worsened with each year, "the government in the
hands of their masters "and the corrupt courts began
to talk of violent revolt.

"The rich, angry at the
challenge to their property, "prepared to defend themselves by force. "Good sense prevailed
and Solon was elected "to the supreme archonship. "He devalued the currency, "easing the burden of all debtors. "He reduced personal debts "and ended imprisonment for debtors. "He canceled arrears in mortgages. "He arranged a graduated income tax "that made the rich pay at
12 times that of the poor. "And he arranged that the
sons of those who died "in the war of Athens should be brought up "and educated at the
government's expense." Now, when you fast forward to today, look at some of these policies
that are being talked about.

We're talking about
universal basic income. You've got Bernie Sanders
saying that we should just forgive student debt. You've got the current
moratorium on evictions and talk about how just loan forgiveness on the mortgage side of things. This is all sounding
pretty familiar, right? So these periods of
redistribution of wealth, when inequality has kind of built up, there are these similarities when you look throughout the past. I think it's actually quite
clear what we need to do in order to improve that
economic inequality. But the problem is, we're
just not talking about the right stuff right now, I think. – Certainly. I don't know if you notice this, but as interviewing a lot of folks, I certainly noticed that when you're a hammer, you see nails. And I know this is true for me personally. But I interview financial
folks, these market speculators, different market
operators, hedge managers, and they tend to focus more
on the financial malaise or these financial issues
of inflation/deflation, debasement, and like, "Oh, that's what's
gonna break the system." Whereas, I speak with some
kind of health practitioner or a psychologist or some historian, and they're like, "Yeah, inequality.

"The society is gonna break. "And then that will break the markets." And that's kind of my big question, is wondering what is gonna break first? Or maybe you can't even answer that because they're so tied. Because economics is society,
society is economics. And I don't know if you've
thought about that at all, this connection between me, my family, my decisions as a person, what's gonna force me to go
to the streets to protest, and as opposed to what's
gonna happen in the markets that wipes out our family
savings or whatever. I don't know if you've thought about this, kind of this tension
between people and dollars.

– Yeah, that's a great question. I, like you, have observed that. I mean, when you listen to people, people will tell you about the world through their own particular lens, right? So if you talk to someone- – Which is fine, we can't escape that. – Yeah, exactly. But you just gotta almost keep in mind who you're listening to and
how they approach the world and the bias that they naturally have. Like, if you're a guy or
gal who's built their career on calling bubbles, guys like Taleb or Nouriel
Roubini, then guess what? You're gonna be looking
for the next big bubble, because that's what you do. That's your reputation. And so, you just kind
of have to keep in mind who you're listening to and the lens through which they view the world. In terms of kind of the
second part of this question, which is this tension
and how do you kind of parse everything out? I'm not really sure you can. I mean, everything is
so interrelated, right? What's going on in economics
is gonna impact politics. Politics tends to impact economics.

I think you can draw a
lot of this back to just Maslow's Hierarchy of Needs or… I don't know if… I'd love to go back to… I took a couple of philosophy classes and I don't know if you've
ever seen that "Onion" article, "A Guy in Philosophy Class
Needs to Shut the F Up," I totally agree with that. (Bradford laughing) And it's really just frustrating. – "The Onion," it's the only
news I actually read, so… – Oh yeah, no, me too. It's the best source of information
as far as I'm concerned. (Bradford laughing) But one, I can't even
remember whose idea of, philosophical framework this was, but basically, this person
linked the idea of happiness to being able to advance
your position in society.

And that's kind of the
only one that's ever really made sense to me. If you see a path towards
bettering yourself, in general, that will create buy-in in society and people will tend to advance. I think one of the big problems today for different demographics, this is kind of divided by age and it's also divided by where you are in the country, right? So what Donald Trump did is he tapped into this huge disenfranchisement
of one particular group of people. Those groups of people tended
to be based in the Midwest and they tended to belong to a certain wealth bracket, basically.

There's also distinctions
between age, right? So, the vast majority of
wealth in this country is concentrated in the
Baby Boomer population. And I think, for younger
folks, Millennials and Gen Z, we don't necessarily see the path that our parents did, right? You can look at home ownership. – We know the story, but it's
not connecting with reality. – Well, it's just, it
used to be very typical… Home-ownership, the average
age of home-ownership is increased from something
like 24 to like 35 or something like that. Home-ownership is a big
part of the American Dream. It's a huge financial unlock. It also makes you feel
like you are progressing in your life. Housing is skyrocketing. That's great if you own a home. But if you don't, I mean, how impossible does feel to plonk down $400,000 or $500,000 as a down payment, before you have enough to
worry about your mortgage? So those changes, those trickle down and impact your behavior
and your decision-making.

And if you don't see a very
safe and established way to advance yourself
economically, or whatever it is, then you tend to opt into more convex payout-type behaviors, right? So that's why you see… To me, not to get too political, but the connection between
the rise of Donald Trump and meme stocks and cryptocurrencies is that people are saying, "I don't see a safe and established path "for me to achieve what
I want out of my life. "So I'm gonna take this crazy… "I'm gonna take this option "that's a little bit out of left field." – [Bradford] The gamble.

– Maybe it'll work, maybe it won't. But you know what? If I do this, I know I'm not gonna get to where I wanna be, right? So you're kind of seeing it
across the political spectrum, across the economic spectrum. People are, in these
disaffected demographics, they're more and more
willing to take chances. And that's a little bit
concerning, I guess. – Yeah, so bringing that, what you just laid out
really well, back to Rome, where do you see us more closely related? I know Mike Green has said he sees us in kind of that flipping from the republic to more of the autocratic around where an Augustus
became an actual emperor.

Or do you see us more towards the end, of like the sunset of an empire? – There are concerning similarities. I'm not sure I would agree with Mike. And here's… The concerning similarities are the wealth concentration
within the kind of elite class. Back then, it was kind
of the senatorial class, is how it was described. Here, today we just call it the 1%.

Whatever it is, the
vast majority of wealth is concentrated in a very small number of highly influential people. It's actually much worse even now than it was in ancient Rome,
which is pretty concerning. – [Bradford] Whoops. – And, yeah. And when you have stuff like that, you start to see the
rise of populism, right? Which is what we're seeing. So again, not to get political here, but if you look at people
like Bernie Sanders, AOC, and Trump, it's very easy to look at those two groups of people and say, "Those people are nothing alike," but they're populists, in my opinion. – [Bradford] They're disruptors. – Right, exactly. And historically, when you
start to see populism crop up, it doesn't really bode well
for the rest of society. So in those sorts of situations, when there are power vacuums, that's when people will defer
to kind of a strong man ruler and they'll say, "Hey, this isn't ideal, "but just, it's enough," right? Eventually Rome, what made the transition, was this like 80 year
period of civil wars, where people said, "Look, I
know that I don't like this.

"This is not the very foundation, "that we don't have a
dictator or an emperor, "but look, guys, we just
can't do more civil war. "So we're just gonna divert to this." So what I think we still
have going well for us is the spirit of independence and a healthy distrust
of government in America. So it's very hard for me to imagine, unless there was, frankly
a prolonged kinetic war, I don't really see us
making that transition. But I do think that we need to figure out how to solve this economic
inequality problem.

And we need to focus on
the vectors that matter. We need to focus on housing. We need to focus on credit and education. And we are failing on all of those vectors in a really big way right now. – So to kind of sum this up,
I'll put it in two camps. We got our social and our economic, and maybe we can't simplify
this this easy, and that's fine. But I'm hearing your greatest
concern in the social is inequality, which also
bleeds into the economic, for sure. But would the currency
debasement kind of fit into that greater concern of economic, if we're gonna parse these
things kind of in half? – Yeah, well, maybe this
is where we can transition a little bit into crypto here, too. Currency debasement
happens, it's palliative, it's a patch on the real problem. The real problem is that there's a lack of structural growth, right? So currency debasement,
I think, is exacerbating the effects of what's happening, right? We don't have that structural growth.

It is politically and
socially unacceptable to say, "There's no growth here." So what happens is central
banks step in and they say, "Hey, we're gonna manufacture
a little bit of growth "and we're gonna try to
encourage investments "so that we can spur growth." In the best sorts of situations, you actually do end up with growth and those easy monetary
conditions and money printing actually lead to assets
that produce cash flow so you're okay. And the worst conditions
you kind of just end up inflating away a lot of that debt and that leads to a lot of problems. But ultimately, we need to kind of solve that core structural problem of growth. Where… What is the area that
we're going to focus on that's gonna deliver the
next 20 or 30 or 40 years of real growth so that we
can stop this money printing that we're doing, and
this currency debasement? So, something like Bitcoin
is a part of that solution. It is not the entire solution. I'm very skeptical of
sound money standards of… Sound money basis of the monetary system that has failed multiple times.

It's pretty incongruent with
human nature, in my opinion. That being said, we've swung the pendulum so far in one direction it does feel like we need something to kind of anchor us back to reality. But at the end of the day, sound money is only one
part of the equation. I think it's very unlikely that we'll have a reserve currency that's based on some sort of sound money standard. At the end of the day, I think
we need to find real growth. And I think the part of crypto right now that's very exciting to me is this is a new way of monetizing networks. And if you look at where
the value has accrued in the stock market
over the last 10 years, Facebook, Amazon, you name it, these are all networks in
one way, shape, or form. Those are the most successful companies that have been born in
the last 10, 20 years.

And crypto is an entirely
new way to monetize and own those networks. So what's really exciting
to me is some of the stuff that's going on on the
periphery of crypto, stuff like DeFi and NFTs. 'Cause I think that will
help create the growth that we really need to get us out of where we're at right now. – Well, it's definitely interesting listening to everything you've been saying over the last 30 minutes, here.

I hear subtexts of crypto this whole time. And it is very interesting how… I have a really hard time
thinking about crypto because it's… In fairness, I'm long crypto. But I really do struggle thinking about it because there's this
narrative that's given, of crypto can heal, it can fix your inequality, it can fix the wealth gap, it can fix all these things that your average middle-class
person is feeling. It's almost too perfect of a narrative.

And so I wonder, can it be both things? Can it be this solution,
yet also this kind of, bubbleicious euphoria state? And we've seen it. We've seen it has this kind of, seems to be a four-year cycle of like, "Wajaw!" and then it just plummets. And so maybe it does have both, but it's just compressed in
such a short time period. I really do struggle to think about this. Is the wool over my eyes? Is this the way? I don't know. I would assume you've thought about this way more than I have.

– Yeah, I don't think
anything is a Shangri-La. I actually have a pretty strong objection- – Exactly. – To people… I gotta be a little… When people say, "Bitcoin
leads to world peace." – (laughs) We're recording, Michael. – Yeah, I'm just like, "Come on, man. "What do you…" You can just look historically
and see that that's not…

That doesn't tend to come about. I think- – Yeah, anyone selling you
a utopia, I don't know, point to one where it's
actually happened ever. – Right. I just don't think it happens. I think you have different
governance systems that trade in and out of favor. I think there are trade offs, and hopefully we move the
ball in the right direction. Crypto is not without intense flaws and it's not for everyone. And if you wanna talk about this within the context of
solving wealth inequality, but let's say there are a couple
of disaffected demographics in the U.S. Let's just call it kind
of the middle-class, Midwest sort of demographic and then the younger demographic, which can't afford any
of the financial assets.

Okay, maybe crypto is actually good for one of those demographics. Young people tend to like crypto. So it actually might work
as kind of a level set in between younger and
older generations, right? If crypto continues to
grow as an asset class, if young people wanna own it, that could be a tool to grow wealth in a certain demographic. That being said, I'm not
sure it solves the problem for the other big disaffected demographic, and I'm grossly oversimplifying here, but there's a lot of people that are just never gonna own this stuff
in its current state, because Bitcoin is a 100 vol asset. It takes nerves of steel and whatever else to hold this stuff over
long periods of time. Most people probably lose money in this, because volatility sucks.

You'd rather something just kind of steadily plods up like this. But when it goes like this, it's an emotional roller coaster. And most people just won't be comfortable keeping their wealth
in something that could dive 50% tomorrow. – And most people have emotions. – Most of us do, my friend. Not if you're Ted Bundy, but if you're the rest
of us, yeah, you do. – (laughs) Exactly. – So, yeah, I don't love when almost like a morality layer
gets put over this stuff. To me, it's an exciting technology. I think it's actually
more than a technology. I think it's solves a
coordination problem. I think what excites me
the most about this space is it's almost like it's a
new way to monetize networks.

It's a new organizational
structure, akin to the creation of the
joint stock corporation. But I don't think it's the Shangri-La that is going to solve all
these societal problems. It's not gonna solve financial panics. It's not gonna solve wealth inequality. Those are afflictions of the human spirit. When you look at financial panics, you look at things being unfair, that's just a result of human
nature being what it is. – Yeah, new technology's
not gonna fix human nature. So I've been thinking about this lately. So you touched on this
long volatility play that certain groups are… All for things that you
were saying earlier. People are voting for Trump. They're voting for Bernie Sanders. It's almost like this
gamble, as you put earlier. It's like a long vol. It's like, "Well, I don't
know what's gonna happen, "things are not good, I'm just gonna go, "I'm gonna shoot for the moon." And crypto is certainly
that, as an asset class. It's this long vol gamble, in a way.

Like, "Oh, I'll just
put some money into it "and see what happens." Basically, everyone's doing that. At least all my friends are like, "Yeah, I've got 500
bucks in it, whatever." And so, I wonder if… Here's just a thought experiment. If Bitcoin continues to
develop as an asset class and a generation grows up
with it, Millennials, Gen Z, and they become financialized with crypto, and it's this massive volatility asset. And then, let's say, as it's adopted, its volatility diminishes
into a normal range. We're gonna have this generation that grew and became financialized
with crazy volatility. And I'm just wondering,
fast-forward 30 years, what does that do to a generation? If they just crave this volatility? Are they just gonna turn into… Are they gonna age like everyone else and crave low volatility and safe? Or are they gonna kind of be like those…

The big gamble generation
the rest of their lives? – Yeah, I mean, you're asking
a really good question. I do not have an answer with you. I talk about this a decent amount. If you think about the
holder base of Bitcoin and what attracted
people to owning Bitcoin, there are two possible explanations. One is a group of people that have a certain target risk profile, right? They're totally comfortable
with super volatile assets because they want really
high risk tolerance. They want a huge return, right? And if you've owned
Bitcoin over the course of the last 11 years, that's
pretty much what you've gotten. The other subset is this
ideological component or reason for owning it. And you see the same thing in sort of the gold community, as well. People that have owned gold, even though it's underperformed virtually every other asset over almost every time period
that you could possibly line it up against, because
there was an ideological reason for them to own it.

They feel safe. No judgments. So, in order for Bitcoin to be successful, it cannot continue to be as
volatile as it's going to be. It's either going to fail, and it's not ever going to
be a great store of value or unit of account or medium of exchange. I don't see how it ever
gets to medium of exchange. I think it's got a really
good shot at store value and unit of account. So either it never gets there
because it's too volatile or it eventually does get there. And it actually stabilizes
in the next 30 or 40 years or something like that, it starts to act as a good
store of value, unit of account. But then the core holder base of Bitcoin, let's say, the younger sort of generation, is gonna have to have a
new reason for owning it.

So I don't… Because that volatility won't be there and those prospects of huge returns, and it's gonna look something more like a savings account, something like that. So that's, I think, a transition that it's gonna have to
go through at some point, if it's successful. I don't have a great… I don't think volatility works for most people long-term, man. Volatility sucks. People want comfort. They want to feel enfranchised. And when you're young and you don't have people depending on you, it's
one thing to be like, "Hey"- – It's like, "Woo-hoo!" – Yeah, woo-hoo! Yeah, maybe I'll make some money here. But I think that changes pretty quickly when you're married and
you have that dependence in the form of kids, right? Volatility becomes much less tolerable. – Yeah, more like sit
down talks once a month, "So, what have you done
with our money?" (laughs) – (laughs) Oh, man.

Are you getting those
these days, Bradford? – (laugh) Not yet, luckily. So I just spoke with a
psychiatrist yesterday, an interview, and I asked her to analyze the mental health, mental capacity, mental state of the American nation. It was a really cool conversation. But something she said is that someone who has psychosis is unable to think about, to assess
doubts of their view. And I was like, "Whoa, that's serious." – Yeah. – Yeah, I'm like, "Wow, okay,
I have doubts about stuff. "I guess I'm safe there." But so I wonder… I just teed this up, so now you have to tell
me doubts, basically.

Is that, what are some of your doubts about the crypto space, and are you hedged against those? 'Cause you're fairly… If you have crypto in your holdings, your profession is also based… So you're fairly long. But, anyways. – Oh, man, do I have doubts? Well, the good news is I'm extremely sane because I'm swimming in
doubts about everything. (Bradford laughing) Let's be… I have a deep conviction
in this space, right? I left my job a couple years
ago to start this company. I have a lot of personal holdings, outside of just BlockWorks,
in crypto assets. I have a deep amount of conviction. But I have a lot of worries. One, crypto's the ultimate
bucket of risk assets, right? Everything is essentially
being propped up right now by monetary, soon to be fiscal stimulus, and extremely accommodative
monetary conditions in the form of really low rates, right? So everything, if it's stocks or bonds or real estate or whatever it is, is really pegged to what the
Federal Reserve, specifically, is doing by setting the risk-free rate.

If that were to ever move,
crypto would get smacked by that, because they are kind of
the ultimate risk asset. So what do I fear? A global turn-down. A global macro turn-down across a whole bunch of
different asset classes, I think, would be very concerning. At least, that's a short-term thing. I think regulation is really important. I think we're at a critical state here. I mean, I don't know how
much you paid attention to the infrastructure
bill earlier this month, maybe it was end of last month. Time's hard to keep track of these days. – [Bradford] Yeah, a little bit, yeah. – But there's a big question of how is this stuff gonna get regulated? And you see different
incentive structures, even within the U.S., right? So I talked a little bit
before about what I think the business model of
the U.S.

Is right now. We wanna foster innovation here and make sure we take our cut of it. The problem is, this
particular type of innovation, which is monetary innovation, that threatens a really
important political tool that we have in the
form of being the issuer of the reserve currency and control over the banking and global
financial system, right? So there are two different
stakeholders there, right? You've got these people in power. From a political standpoint, they want to maintain control of this. And they're not thinking
as much about just the economic benefits of
allowing crypto to foster here, having this be the seat
of crypto and making sure we're getting paid for
fostering it, basically. So my worry is that the wrong
set of incentives prevails and crypto gets regulated
out of the United States. And while I don't think
that would be a death blow, I think it would be really debilitating for a long period of time. I think there are also… When I first got into Bitcoin, I was really bought into
the sound money narrative. Alan Greenspan, who's
arguably the architect of super accommodative monetary policy, he was a sound money guy, too.

And then he figured out, what's the point of sound money if governments are dishonest, right? If the government wants to spend, they'll literally just
bankrupt themselves, be damned with the sound money. And so, I'm starting to view Bitcoin as more of a trade than
a long-term holding. So I'm starting to doubt
that sound money makes sense over long periods of time, 'cause I think it's
incongruent with human nature. And then I think, ultimately, in something like decentralized
finance, my biggest worry, it's a cultural value of DeFi that, not your keys, not your crypto. Self-sovereignty, be your own bank. Here's the thing. I'm not technical, as a person. I don't actually really
want to maintain security over my stuff. I don't want to have all of- – [Bradford] It's scary sometimes. – It's scary, man. If… The majority of my assets,
I can lose permanently, by committing some sort
of OPSEC security error. That sucks.

And that is a structural
and cultural component of this space that I
think is hard to resolve. And then, I think the other one is something kind of unique
about DeFi, in general, in blockchains is that when
you're designing them… When you're designing software,
as compared to hardware, you just kind of wanna get something out because it's really easy
to iterate on something. Whereas hardware, you wanna
make sure you get it right. Because if I manufacture
6 million of these things and I have to recall them,
(blows air through lips) that sucks. With blockchains, it looks like software- – [Bradford] It's like both. – But it's like both. Because if you ship it, there could be a $900 million hack, which, by the way, just happened, even though that got returned. So that's a little bit of a
weird repudiation of that. But, yeah. So I just think there's
a lot of structural risk in terms of when we make
transition like this. Hacks will happen. People will lose money,
all that kind of stuff.

So I worry about that. – Well, so, I'm really
interested in the regulatory. Not your thoughts on what's gonna happen, but you personally. Let's say… Well, let's rewind a little bit. Because if crypto fulfills its
part of its destiny narrative of being this sound money and
this escape from debasement, well, we can look back at gold, and we're both familiar when those time periods
happen, gold is often… Well, not often, but it has happened- – Sure.
– Where it's become illegal to hold. And so, that's, of course, worrying. And so, I'm wondering, you, Michael, if it was deemed illegal to hold tomorrow, what would you… Would you turn into Monero
and be like, "Sweet!" Or are you selling, and like, "Here, Uncle Sam, here's my dollars, "thank you so much, let me
thank you for debasing them"? – You're asking me a
really difficult question.

I do not know what I would do. Because yeah, I mean, I've… I feel really deeply about this industry. I think it's pretty rare to
have conviction on something. So when you do have conviction, you should sort of go all in, especially when you're young
and you can take risks. I have a deep amount of conviction
that I kind of feel like I've seen the future here. If the U.S. were to say,
"It is illegal to own this," I don't think they will, but if they did, yeah, I'd be faced with
a pretty hard choice.

I love being an American. I kind of like living in
America and doing stuff here. I don't really want to move
permanently somewhere else. That being said, I would feel
like it was really unfair. And yeah, I think I'd have a hard choice. And just refer to that
Executive 6102, or whatever, when it was made illegal in 1933, the reason that they
did that was, back then, the dollar was backed by gold. The Fed had to reserve, basically, 40% gold to U.S. dollars. We were going through the
Great Depression at that time. The reason why we made
it illegal to own gold is because people were
pulling gold out of banks because they were worried about dollars. Therefore, we had to
maintain that reserve. So we couldn't ease monetary conditions to the amount that we wanted to. Fast-forward to today,
the dynamic is different. We are not backed by anything. – [Bradford] It's very different. – But, the way the government funds itself is through issuing bonds.

So I think the only way that we would ever get something as draconian as a complete ban on something
like Bitcoin or crypto, is if it ever interfered
with the government's ability to issue bonds ad
infinitum and fund itself. Because when the government
runs out of the ability to fund itself, well, then, you've kind of backed them into a corner and then they might do drastic things. So that's how I think about it. – Which, that's interesting because all governments get to
that point at some point. So I guess, theoretically, that that time period will
happen in our lifetimes, in a year. I have no idea. But this story… There is an end to all stories. – (laughs) Right. – And, (laughs) the American
story, at some point. But that's beyond my
pondering of when will the markets stop funding the government.

But that does lead into… So here's my biggest worry. And and I wanna hear
your thoughts on this. Is that, I said it a little bit earlier, that crypto really fulfills the narrative that this is your way, this is your hope, you Americans, of how
to escape inequality, escape the wealth
divide, escape inflation, and finally achieve the American Dream. It is really teeing itself
up to that narrative. And so, my worry is, what if
a large portion of Americans put their hopes and dreams into that? And then, this is getting
almost conspiratorial, which is why I worry about it, 'cause I hate conspiracies.

Or, I hate diving into that. And so, I worry that what
if a enemy state actor notices this and is like, "Okay, well this is a
weak link to the society." And we've seen pressures already. You mentioned them earlier. So what if a state actor
then is able to somehow negatively impact the value of the store of hopes of
Americans, and that tanks? And it's like, "Okay,
everyone's going to the streets "at that point." This is really simplified, and I'm sure there's lots
of holes in this theory, but that's one of my worries.

– Totally. I think… I mean, there's two parts of that. One, do I think crypto
is the most effective way to tackle the problem
that you're dealing with, that you just illuminated there? And then two, what if there's this kind of hostile nation state, hostile actor that uses this
to the detriment of the U.S.? So probably the only nation
that is in a position to do that would be somewhere like China. And back in May or June,
China cracked down on crypto. It was pretty interesting to watch. Actually, I think we
could do a whole podcast on just the different way
that China's regulating their markets right now versus the U.S. I think it's fascinating to
watch play out in real time. – [Bradford] (laughs) Yeah. – But China, the reason why
there was vulnerability there, and guys like Mike Green
have pointed this out, is because something like, depends on what source you're using, but like 70% of the Bitcoin kind of mining power hash rate
was based out of China.

And they basically said,
"All you, get out." Now, not all of them did get out, but a large, large portion
of them actually did. It's hard to really imagine… That would be it, right? If China wanted to tank
the price of Bitcoin, that'd be the most effective
way they could possibly do it. And they did. I mean, they tanked at about 50%, and now it looks like it's recovering. So, does the possibility exist? Yes. I struggle to kind of see
how they would do that or what countries would
be capable of doing it, outside of China.

That doesn't mean that it's impossible. That just means that I don't have access to that information, or I
haven't thought about it. But I think crypto, in
general, is pretty incompatible with a country like China, right? If you look at what they're doing with their own regulatory
action, they care about control. That is deeply within the DNA of China. And partially, that's a cultural thing. Partially because they're
essentially planned economy. Whatever it is, there's a whole
bunch of different reasons, but that aspect of control
is really important. And then, on a more pragmatic standpoint, they do not allow for free flow of capital in and out of their country. And crypto is a global industry with kind of a monetary theme at the base of everything, right? So when you look at…

I mean, yeah, this is a
really interesting thing to think about. Fundamentally, crypto is
incompatible with China. It seems, on the surface, like that should be really
compatible with the United States because we essentially have really strong kind of property rights laws, really strong courts that uphold
those property rights laws. We have really deep, large capital markets where we encourage innovation. That's kind of our
advantage and why people continue to essentially
fund us, fund our deficits. On the other hand, we have this tool in the form of the
reserve currency, right? Which this is highly disruptive to. So, do I worry about other nation states potentially using this against us? Not really. Again, I would just point
it back to that worry that I had before, which is just that the wrong incentives are gonna prevail and that we're not… We don't clearly see that this
is an advantage to the U.S. And if we don't do it, someone else… I do subscribe to the idea
that if we don't do it, it's gonna crop up somewhere else. And then we're gonna…

It's too bad. And you can kind of look at Europe. There's a reason… I know these VCs on Twitter say
this, it's kind of annoying, but I do kind of agree with it. There's a reason why you don't
see a lot of internet giants coming out of Europe. And it's because they had really
stringent regulation on it very early, and we
protected it with Reg 230, or whatever it is that we have in the U.S. And I know that's coming under fire, but that did lead to the creation of the Facebooks of the world. And again, you can debate
whether or not that's good, but I think it was pretty good.

– Yeah, there's a debate for you. (laughs) – Yeah, yeah. – So we're wrapping up here,
but last little question here. Do you think crypto is
evolutionary or revolutionary? I mean, it's a bit of both, I don't know. – I'm not sure. I think it's one of the few areas where there's classic
disruption going on today. So if you think about the
Clay Christianson version of what disruption is, that arises because there is a market that is originally very small, that it doesn't actually
make business sense for incumbents to pay attention to, that eventually becomes larger than the original market, right? So kind of the classic
example of that was IBM and personal computers. So IBM used to make these huge mainframes for their corporate clients. And I don't even know what
the ticket on that would be, of something was… It was in the… A seven-figure sale, right? So then personal
computers start to crop up and they're like, "Well,
that's a tiny market.

"That's the only for tech nerds who wanna "do random stuff, and
you can sell one of those "for maybe $1,000. "Why would I try to sell
something for $1,000 "when I could sell
something for $1 million "or $5 million to a corporate client?" So it literally isn't that they missed it or they were dumb, it literally was that they looked at the opportunity, it didn't make any business sense, and that's why they didn't pursue it.

And that's why I think crypto is so interesting today, right? Because if you look at other technologies that people point to, artificial
intelligence, for example, it's the opposite of a
disruptive technology. That will enforce competitive advantages that the incumbents already have. If Google… Google and IBM are the ones who are gonna adopt AI first, right? Or, they're heavily in the lead. So is that gonna be disruptive? Is that going to lead to
new competitive forces that unseat the incumbent Google, or is that just gonna
strengthen their advantage? Probably gonna strengthen
their advantage, I would wager. So crypto is pretty interesting because it has the potential to unseat many very powerful incumbents. And that, to me, is the true definition of disruption because it
started with this really niche, little weird market that
people weren't even really sure was necessary or needed. So revolution, evolution,
I'm not really sure. I see it as being, I
guess, highly disruptive.

– Yeah, well, I actually
like how you approach that, through a lens of power dynamics, not necessarily the technology or the monetary aspect of crypto. And ultimately, for me,
that is the most important of all this stuff, is
we have so many thoughts right now about power. And there's often, like, "These
people have too much power, "I don't have enough,
we need to change that." Well, at the end of that equation is still someone has power and
someone doesn't have power. – Totally. – You can't extinguish power perfectly. It exists. It's gonna continue to exist. And so, I actually really… I'm gonna keep thinking about that. I like your answer to that, of how the power,
perhaps, will just change. – Yeah. – So, I think we're gonna close this out. – Cool. – Michael, thank you so much. We did speak a bit about
some of the work you do, professionally, at BlockWorks, but maybe give us a little bit of where can folks find you personally? And then, a bit about BlockWorks, and where can folks find a lot of all the content you guys produce there? – Yeah, sure, thanks.

So, you can find out more about us if you hit our website, www.blockworks.co. You'll find a whole bunch of news and everything on that site, both reporting on financial markets and what's going on in crypto. If you wanna follow me
on Twitter, I welcome it. I don't have nearly enough followers. I suck at Twitter. My handle is Michael Ippo. You can also follow the BlockWorks handle, at just BlockWorks, underscore, I think. And, in terms of what we do, the entire value proposition, I love talking about
stuff like this because we try to bridge the gap in between what's going on in the broader world, what's going on in financial markets, and how is crypto growing and going to impact that, basically.

So I think, we try to,
instead of talking to people that have already bought into this space and they're already kind of evangelists or zealots or whatever
word you wanna call it, we try to broaden the
scope of what is going on and speak to people in their language, specifically financial professionals. So, if you're a family
office or you work at a bank or you work at a fund and
you're trying to learn more about this space, I highly
recommend you you hit our site. – Yeah, I'd second that. I visited the site and it's not like your typical Bitcoin site, which just, evangelistic
conversion propaganda. It's well thought out, well researched, hopefully non-biased, but… – Thanks, Bradford, I appreciate it. This was a lot of fun, man. Thanks for having me on the show. (gentle music) – Listening to other YouTube channels, I hear a lot of the
smashing the Like button. I'd like to suggest you gently click it.

It's gonna be nicer on your computer, and probably longevity for
your technology, anyways. So lightly click that Subscribe button, like, rate, and review. It is the best way to help
us reach more audience, more people. And that way, we can keep
producing content every week. Make sure to drop a comment below, who you'd like us to interview next. And we look forward to
seeing you next week. (upbeat music).

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